The Registered Disability Savings Plan (RDSP) is a valuable financial tool for people with disabilities to save for the future. As a quick refresher, the Registered Disability Savings Plan (RDSP) is a long-term investment account where you can deposit up to $200,000 in personal contributions, receive up to $90,000 in government contributions, and earn unlimited investment income. It is also fully exempted as income or an asset for all federal programs and most provincial/territorial disability income assistance programs.
You may wonder whether the RDSP is right for you or your loved ones. We will cover age restrictions for the RDSP, and other important considerations based on whether the RDSP is for a minor, an adult until the end of the year they turn 49, an adult in their 50s, or an adult over 60.
Important Terms
Before we continue, it is important to understand two terms: beneficiary and holder.
The RDSP beneficiary is a person with a disability who qualifies for the Disability Tax Credit (DTC), otherwise known as the T2201 Form, from the Canada Revenue Agency. The beneficiary is the person who will receive money from the RDSP when it is time to make withdrawals.
The RDSP holder is the person responsible for managing the RDSP by working with the financial institution, choosing and approving investments, and ensuring that everything is running properly in the account.
The beneficiary can also be the holder once they reach adulthood. Depending on the account holder’s contractual competency, someone else may remain the holder.
Age Restrictions for the RDSP
With the RDSP, there are a few age restrictions to be aware of:
- An RDSP can be opened for a beneficiary until the end of the calendar year (December 31st) when they turn 59 years old. Once the person is in the calendar year when they turn 60, it is no longer possible to open an RDSP.
- Government contributions in the form of grants and bonds can only be received up to the end of the calendar year when the beneficiary turns 49 years old. This includes any retroactive grants and bonds to which they may have been entitled. This is because of the 10-Year-Repayment rule, which means that the beneficiary must wait 10 years from the date of the most recent government contribution to withdraw. If they do not wait, they will need to repay any grants and bonds received within the last 10 years at a rate of $3 for every $1 withdrawn.
- Mandatory withdrawals from the RDSP must start no later than the end of the calendar year when the beneficiary turns 60. Withdrawals can start earlier than age 60 but no later.
If the Beneficiary is a Minor
When an RDSP is opened for a beneficiary who is still a minor (age 17 or 18 and younger depending on province/territory), there are a few things to keep in mind. The RDSP will function the same as it will during adulthood, with some differences:
- The holder must be the beneficiary’s parent(s) or legal guardian(s).
- The income used to calculate the RDSP grant and bond eligibility for each year will be based on the parent(s) or legal guardian’s net family income from two years prior. This is because this is the most readily available income tax data that the government has.
- Income taxes for the beneficiary should be filed as soon as they are 17 years old. This is important because when they are 19, the grant and bond eligibility is based on their income taxes from two years prior (when they were 17). If the government doesn’t have this tax data, they will assume the beneficiary is a high-income earner and they will not receive any bonds and only the lowest matching grant, regardless of their actual income.
When the beneficiary reaches adulthood, there are a few considerations:
- When the beneficiary reaches adulthood, they may become the holder of their RDSP. This will depend on whether they have the ability to understand and follow through with the contract to be the holder of their RDSP account (referred to as contractual competency).
- If the current RDSP holder is their legal parent(s), they can remain as holder(s) once the beneficiary is an adult, even if the beneficiary has contractual competency.
- If the current RDSP holder is a different legal guardian, then they must be removed as the holder when the beneficiary becomes an adult. If the holder does not have contractual competency, the new holder will be the beneficiary, their legal representative, or a qualifying family member. The qualifying family member can be the beneficiary’s parent, common-law partner, spouse, or adult sibling.
If the Beneficiary is a Legal Adult
Once the RDSP beneficiary has reached adulthood (up until December 31st of the year they turn 49), the RDSP is going to function similarly to how it does when the beneficiary is a minor. The key considerations during this time are as follows:
- Grant and bond eligibility is based on the beneficiary’s net family income from two years prior. This means that they must have had their income taxes filed from age 17 onwards and must continue to file their taxes each year. This ensures that the beneficiary receives the maximum amount of grants and bonds.
- As the recipient approaches the age of 50, they have a reduced chance of obtaining the full $70,000 in grants and $20,000 in bonds. This is because it takes 20 years to get the maximum grant and bond amounts. This is also why it is important to open the RDSP by December 31st of the year the beneficiary turns 30.
- Funds can be withdrawn during these years. For more information about withdrawals, please review our RDSP tutorial section.
If the Beneficiary is in Their 50s
Some people will open an RDSP while they are in their 50s or may continue to deposit into one that they opened at an earlier age. The key considerations during this time are as follows:
- No grants or bonds are allowed into the account starting in the calendar year in which the beneficiary turns 50, even if they are approved retroactively for the DTC.
- This is the ideal time to contribute to the RDSP and get the personal contribution amount higher than the government contribution amount. This will ensure full flexibility with withdrawals when it is time to take money out.
- The RDSP does not affect provincial/territorial income, federal income or disability assistance, including the Canada Pension Plan, Old Age Security, and the Guaranteed Income Supplement. Any funds saved and withdrawn from the RDSP will not impact eligibility for these programs. Learn more about this here.
- During this time, the RSDP may be used for large lump-sum contributions, like money from an inheritance or an accident settlement. Others may wish to continue to contribute regularly, as it will not affect eligibility for other benefits.
- Withdrawals typically begin during these years, and if not, shortly after. It is important to speak to a financial professional a few years before withdrawals are made. This will help mitigate risk and ensure that withdrawals can be made when it is time to do so. We also suggest using this time to plan the frequency with which withdrawals will be made, and to determine if there are any other tax considerations.
If the Beneficiary is 60 and Over
Mandatory withdrawals must start by December 31st of the year the beneficiary turns 60 years old. We recommend using this time to focus on investing the RDSP appropriately to ensure easy and efficient withdrawals. The RDSP can still be transferred to another institution during this time if needed.
The RDSP can be closed once there is no more money left in the account.
- If the government has deposited more money into the RDSP than the holder by the time withdrawals take place, then the RDSP typically pays out when the beneficiary is 83.
- If the account holder has deposited more money than the government, they can withdraw the full amount of funds in the RDSP at any time and close the account.
For more information about how the RDSP might work for you or your loved one, please contact our free Disability Planning Helpline anytime by calling 1-844-311-7526 or by emailing info@rdsp.com.